January 01, 2003

It's Right to Be Left, Holding the Power of Attorney (2003, 17:01)

It’s Right to Be Left, Holding the Power of Attorney

Probate and Property , January/February 2003, Volume 17, Number 1

By Glen A. Yale

Using escrow letters with durable general powers of attorney can benefit clients and their lawyers.

“This is Delores Wells. You prepared the will and power of attorney for my dad, Roger Sanders.”

“Yes. I remember Mr. Sanders. That was several years ago. How is he doing?”

“Not well. He had a mild stroke and he has lost his short-term memory. His doctors say I should look into a guardianship for him, or see if he had a power of attorney and locate it. I located a copy of a power of attorney in Dad’s papers, but I need the original.”

“We have his original power of attorney in our safe.”

“I want to come by your office and pick up the original.”

“That’s fine.”

Wait a minute. You drafted a durable power of attorney for Roger Sanders. He is your client. Delores Wells was named as agent in the power of attorney, but she is not your client. Yet you think that Mr. Sanders wanted the durable general power of attorney released and used in a situation like this.

When Delores Wells picks up the original power of attorney, she willingly signs the receipt for the document. Another client well served by your suggesting a power of attorney when Mr. Sanders, in your initial interview, thought that he only needed a will. The expense of guardianship proceedings has been avoided.

Several weeks later, you receive a call from Robert Sanders, who introduces himself as Roger’s son.

“Dad passed away two days ago. My sister, Delores, and I are named as co-executors in Dad’s will.”

You knew that because you drafted the will. You are waiting for an appropriate pause in the conversation to give your condolences and make your pitch for being the attorney to probate the will.

“Dad had two CDs worth $100,000 each. One was joint with right of survivorship with my sister and the other was joint with right of survivorship with me. Before Dad died, Delores cashed in the CD Dad held in survivorship with me. Delores made a gift of the cash to herself, her husband, and her three kids. She told me that she had a power of attorney that you drafted and she had authority to do that. Also, the lake house where Dad taught me how to fish was to go to me under the will.”

You remember that.

“Well, Delores sold the lake house for about half of what it was worth. She said the power of attorney gave her authority to do that and Dad was not going to use the house again.”

A sour feeling is starting to form in your stomach and the appropriate pause is used to offer an exculpating word. “ Your father signed a power of attorney naming Delores as agent. He signed it just for such a situation as this. Your father had a stroke and the doctors said he needed a power of attorney, so I gave the original to Delores.”

“You did what? He had a mild stroke and was fine. The doctors said he should sign a power of attorney while he was able to get one. They didn’t say he needed a power of attorney right then. He was alert and coherent up until he died. Why did you give his power of attorney to my sister?”

“I thought that is what your father wanted.”

“Well, he didn’t want her to cash in the CD on which I was the survivor, he didn’t want her to give her family gifts of $100,000, and he didn’t want our lake house sold.”

“Well, all of those things were authorized under the power of attorney that he signed. How do you know that he didn’t want them?”

You must forgo your probate administration pitch, but you have fended off this ungrateful child, this troublemaker.

“Dad told me so the night before he died in his sleep of a heart aneurysm. He wanted me to contact you and ask why Delores was doing all those things.”

This telephone conversation is over. Contact your malpractice insurance carrier.

What should you have done differently? You could have verified what Delores said. You could have contacted Roger Sanders to see if he wanted it released. You could have gone and visited him.

But it would have been better from the start to not have that original durable general power of attorney in your files, or in your office safe, without written instructions from Roger as to when he wanted it released.

That’s the reason for the escrow letter that accompanies this article. Any client you have can sign a currently effective durable general power of attorney, but it will stay safely locked away in your office safe until the client wants it released.

Springing Powers

Couldn’t all of these problems have been solved by having Roger sign a springing power of attorney instead of a power of attorney effective upon the signing? Most states permit a durable general power of attorney that gives no authority to the agent to conduct business for the principal as long as the principal has capacity. Once the principal becomes incapacitated, the power “springs” from dormant to fully effective. Only when the principal is incapacitated and he wants, and needs, someone to serve does the agent serve.

But there are specific problems with springing powers. Banks, brokerage firms, and title companies, among others, hate powers of attorney. It seems that they look for any reason imaginable to avoid accepting the purported power of attorney and the purported authority of the purported agent. The fact that the document contains a springing power, that a third party cannot be certain that the power has sprung, makes it easy to cast doubt on the fact that the principal is incapacitated. Who says he is “incapacitated”? The agent. Correction—“purported agent.” They, the third parties, do not know this purported agent. They knew the principal but, for all they know, he could be out of town, and that is far different from being incapacitated.

Sometimes a principal is not quite incapacitated but knows that he or she is too physically weak to undertake business activities. The springing power is of no use. The principal will need to execute a nonspringing power.

Power of Attorney Escrow Letter

A power of attorney escrow letter itself is a durable special power of attorney appointing the attorney to act for the limited purpose of holding the durable general powers of attorney until releasing them as specifically instructed. Because the escrow letter must be effective when the principal is incapacitated, it too must be durable and be effective during any period the principal is incapacitated. The relevant state law requirements for a durable power of attorney must be met. The sample escrow letter provided with this article complies with Texas law.

The sample escrow letter directs the lawyer to surrender the durable general power of attorney to the named agent only if the lawyer receives instructions to do so from the client, if the lawyer receives written opinions from two physicians that the client is mentally or physically incompetent and unable to handle ordinary business affairs, or if the lawyer obtains credible evidence that the client has disappeared. The escrow letter also directs the lawyer not to release the durable general power to the client’s spouse if either spouse has filed a petition for termination of the marriage. Of course, the escrow letter can be tailored to a client’s individual situation and additional instructions provided as appropriate.

An escrow letter serves several purposes, while being a simple, user-friendly way of seeing that instructions are properly followed. Having the lawyer hold the durable general power subject to an escrow letter can benefit the client, the agent, the client’s family, and the lawyer.

With the lawyer holding the power of attorney until incapacity is certified by two physicians, the principal can be certain that the power of attorney is not released until he or she wants it released. In our hypothetical, Delores Wells would not have possession of the power of attorney and could not have undertaken the actions that violated her father’s intent.

From the agent’s perspective, the release by the lawyer or the lawyer’s firm can be a comforting and reassuring indication that the agent is doing the right thing in serving. An agent, particularly a spouse, may be reluctant to serve when the first act must be of the agent’s own volition, because the agent does not want to do anything to indicate that he or she has given up hope for recovery by the principal and restoration of capacity. In addition, the agent may be reluctant to begin serving for fear of being viewed by other family members as seizing control or publicly indicating the principal’s hopelessness. The escrow letter, by setting forth objective reasons for releasing the power, acts as a check on unfair family criticism or undue reluctance. The attorney’s surrender of the power indicates the judgment of an independent person that the time to serve has come.

As an additional advantage, the escrow letter can provide reasons for the release that go beyond springing power provisions. The sample escrow letter provides for release if the principal instructs release by oral or written instructions. Imagine that the principal is in Europe on an extended vacation. He receives word by a phone call from home that there is a need to make emergency repairs at the residence because of hail damage. He can call and instruct the lawyer to release the power. A springing power has no similar provision or usefulness.

Imagine instead that the principal is missing. He went on a fishing expedition to the Amazon and did not come back as expected. The lawyer gets word that while the client was on a business trip he was taken hostage by guerillas making exorbitant ransom demands. These are unusual situations, of course, but problems like these can occur. The escrow letter provides for release of the power of attorney under such circumstances while the springing power does not spring.

Now imagine that the principal is going through a nasty divorce with his wife, named as agent in the springing power. The client did not get around to canceling the power of attorney, even though the divorce proceedings are heated. Before the divorce decree is signed, the principal has a stroke and is incapacitated. Had the divorce decree been signed, then in a number of states the appointment of the spouse as agent becomes void. Only a few states provide for voiding a power of attorney appointing a spouse as agent simply upon a filing for divorce and before entry of a judgment or decree of divorce.

In many cases a divorcing couple does not wait until the decree of divorce is entered before starting to despise one another. That usually begins back before the divorce was filed (at least by the one doing the filing). With an escrow letter, the principal can instruct that no release is to be made if the attorney has personal knowledge that a petition for divorce was filed by either spouse.

Another advantage the escrow letter has is the ability to provide for successor agents. A client may appoint his spouse as the agent but then, in a common accident, the spouse may be incapacitated or killed and the client left unconscious. The client needs an agent to serve, but the appointment of his wife is of no use because she cannot serve. With an escrow letter, the client can provide for a succession of individuals to serve. Many states permit the principal to name successor agents in the durable general power of attorney. Why name the successors in the escrow letter instead? By naming the agents in the escrow letter, which is not seen by third parties, and giving the successor agent a “clean” power of attorney with no successors or conditions stated, the third party is more likely to accept the authority of the agent.

The sample escrow letter provides for three family members to serve individually in succession. The letter could also provide for co-agents to serve individually, if one of the co-agents cannot or will not serve. The possibilities are endless.

Using escrow letters with durable general powers of attorney can benefit clients and their lawyers. Clients will be willing to sign a durable general power of attorney when they know it will be locked in the lawyer’s safe until it is needed. The lawyer will be confident recommending durable general powers of attorney to clients when doubts as to what to do with them are removed. The lawyer’s partners will be thrilled that the powers can be handled in a manner that complies with representing the client’s interests in accordance with the rules of professional responsibility.